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Franchise or not to Franchise… That is the question

Franchising, do you really need it? It’s a tale as old as time, as taking franchise promises the easiness of plunging straight into the hard boiled business world with little preparation. To open up a franchise, you only need a big start up capital and the rest will fall in order because buying a franchise means you buy everything from the know how (the recipe if it’s a restaurant), and the how to (the management process), is it not? Well, that’s just wrong.

Opening up a franchise involves a lot more work than people might expect. First of all, there is the human resource aspect that is not made available by the franchiser; we have to search for the employee to work for us by ourselves. Remember, weak under performing employee will never get you nowhere even if you buy the best franchise around. Then there is the geography problem, a place where you want to open up the business. We have to think about the ease of access, the surrounding locale, and the desirability of the location. Lastly there is the problem of who is in charge of it all? Certainly we need to know at least what is the nature of the business if we did not want to be bamboozled by the operating manager because our lack of knowledge operating the business.

You guys can look up for the pros and cons of franchising on the net. But I want to press about the cons of franchising using a unique example of franchising in Indonesia.

Krispy Kreme, and McDonald are two of the biggest franchise name in the world. However only one of those franchiser that thrives in Indonesia, and it is not Krispy Kreme. McDonald has the first mover advantage, being the first burger joints available anywhere in Indonesia, since late 1980s… Or something (forgot). However, Krispy Kreme is not so bad after all, being the third donuts chain store in Indonesia after Dunkin Donuts and Indonesia’s very own J.Co, even though KK came on a very late time (just two years ago).

When J.Co was introduced around three-four years ago, it became an instant hit overnight as people flock and queue long lines to buy just half a dozen of donuts. Hot on the tails of J.Co success is America’s leading donuts chain store, KK. Please pardon my lack of knowledge about who owns KK in Indonesia, but suffice to say it is still a franchised chain store therefore franchise traits are still applicable. So today marks the two years J.Co and KK has waged war to garner donuts lover into their shop, and wanna bet who wins? Well, it’s J.Co, the new startup Indonesian company.

The unique advantage of franchising sometimes is also its downfall in the case of KK in Indonesia. J.Co was rumored to use KK recipe to make its donuts before KK open up its store in Indonesia. However, once KK arrived, shortly after J.Co came up with a new recipe that is less sweet than the “competing brand”, and we know who that is. As a franchise company, KK cannot change its recipe, because that was franchising is all about, bringing the unique taste of the franchiser to anywhere in the world. This limited creativity is noted as one of the cons of franchising[1].

My family and friends love the less sweet taste of J.Co compared to KK, and the effects are as clear as a sunshiny day. KK customers dwindles, and in places where there are both KK and J.Co, like in Senayan City, you can see the void of visitors on KK but the same cannot be said to J.Co. KK even go as far as buying one dozen of donuts, you will get two dozens more… That is downright crazy. Well, you can say it is a promotional event, but I think it has going on for more than half a year.

So franchising in the case of J.Co and KK is not really a good thing isn’t it? Well, I am impartial in this issue, but if I have to take side, I’m going to say that franchising is not an option in the case of J.Co Vs KK. J.Co without the ties of franchise has the unlimited creativity to cater with the constant change of market demand. So why McDonald thrives? It is after all a franchise company too… Yes, it is a franchise company, but the franchiser (McDonald of America) has policies to let the franchisee expand its product portfolio. That is why McDonald has/had “local specialties” such as pork burger in Thailand, and Rendang beef burger in Indonesia.

As such, franchising is a prospect that needs to be taken carefully. One must weigh the pros and cons carefully and most important thing is the franchiser’s willingness to adapt to future situation. If you adapt (like McDonald), you will survive, if you just stick to your brand identity… Well, people don’t eat intangible things.

Franchising could go either way really… To be “sure” you need to run down a lot of variables when making the decision of which type of franchise you want to take. But somehow, a lot of people got trapped by the premise of easy money from franchising, at least from my personal experience. In the case of Krispy Kreme Indonesia, it is solely owned by a local company and I wonder if they did a thorough market research first rather than just following the success of J.Co donuts.